SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) - July 12, 1996
PSC Inc.
--------
(Exact name of Registrant as Specified in its Charter)
New York
--------
(State or other jurisdiction of Incorporation)
0-9919 16-0969362
------ -----------
(Commission File Number) (IRS Employer Identification No.)
675 Basket Road, Webster, New York 14580
----------------------------------------
(Address of Principal Executive Offices)
(716) 265-1600
--------------
(Registrant's Telephone Number, including Area Code)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired.
See enclosed Data Capture Group of Spectra-Physics AB Combined
Financial Statements as of December 31, 1994 and 1995, and for the
three years in the period ended December 31, 1995.
See enclosed unaudited Combined Statement of Operations for the Data
Capture Group of Spectra-Physics AB for the six months ended June 30,
1996 and 1995.
(b) Pro Forma financial information.
See enclosed Pro Forma Consolidated Financial Data (Unaudited).
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PSC Inc.
Registrant)
Date: September 23, 1996 By: /s/ William J. Woodard
William J. Woodard
Vice President, Finance & Treasurer
Date: September 23, 1996 By: /s/ Scott D. Deverell
Scott D. Deverell
Controller
<PAGE>
The Data Capture Group of Spectra-Physics AB
COMBINED FINANCIAL STATEMENTS
as of December 31, 1994 and 1995 and
for the three years in the period ended December 31, 1995
The Data Capture Group of Spectra-Physics AB
<PAGE>
INDEX to COMBINED FINANCIAL STATEMENTS
Page
The Data Capture Group of Spectra-Physics AB:
Report of Independent Accountants ................................ 1
Combined Balance Sheets at December 31, 1994 and 1995 ............ 2
For the years ended December 31, 1993, 1994 and 1995:
Combined Statements of Operations .......................... 3
Combined Statements of Changes in
Spectra-Physics AB's Investment ....................... 4
Combined Statements of Cash Flows .......................... 5-6
Notes to Combined Financial Statements ........................... 7-20
The Data Capture Group of Spectra-Physics AB
<PAGE>
Coopers & |
Lybrand | a professional services firm
Report of Independent Accountants
The Board of Directors and Shareholders
The Data Capture Group of Spectra-Physics AB:
We have audited the accompanying combined balance sheets of The Data Capture
Group of Spectra-Physics AB (the Company), as described in Note 1, as of
December 31, 1995 and 1994, and the related combined statements of operations,
cash flows and changes in Spectra-Physics AB's investment for each of the three
years in the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of The Data Capture Group
of Spectra-Physics AB at December 31, 1995 and 1994, and results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
(Coopers & Lybrand, L.L.P.)
Eugene, Oregon
January 26, 1996, except for Notes 3,
as to which the date is February 9,
1996
Coopers & Lybrand is a member of Coopers & Lybrand International, a limited
liability association incorporated in Switzerland.
<PAGE>
The Data Capture Group of Spectra-Physics AB
Combined Balance Sheets
Amounts in thousands, except stock par value, shares issued and outstanding
ASSETS December 31
---------------------
Current Assets: 1994 1995
Cash and cash equivalents ...................... $ 1,749 $ 2,280
Accounts receivable, net of allowance
of $359 and $271 in 1995
and 1994, respectively ....................... 11,755 12,466
Notes receivable ................................ 0 1,642
Inventories ..................................... 7,224 8,691
Deferred tax assets ............................. 1,906 1,564
Other current assets ............................ 2,375 2,233
---------------------
Total current assets ....................... 25,009 28,876
Property, plant and equipment, net ............... 15,734 15,482
Intangible assets, net ........................... 18,568 2,267
---------------------
Total assets ................................ $59,311 $46,625
=====================
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt ............... $ 300 $ 300
Accounts payable and accrued liabilities ........ 10,153 12,662
Deferred revenue ................................ 647 846
----------------------
Total current liabilities ................... 11,000 13,808
Long-term debt ................................... 4,100 3,800
Deferred income taxes ............................ 2,462 1,279
Other liabilities ................................ 240 221
Minority interests ............................... 0 1,647
----------------------
Total liabilities ........................... 17,902 20,755
Commitments and contingencies (Note 11)
Shareholder's equity:
Spectra-Physics AB's investment ................. 41,409 25,870
----------------------
Total liabilities and shareholder's equity .. $59,311 $46,625
======================
The accompanying notes are an integral part of these combined financial
statements.
<PAGE>
The Data Capture Group of Spectra-Physics AB
Combined Statements of Operations
Year ended December 31,
---------------------------------------
1993 1994 1995
---- ---- ----
(in thousands)
Net sales .......................... $ 79,455 $ 88,334 $101,627
Cost of goods sold ................. 48,637 55,784 60,188
---------------------------------------
Gross profit .................. 30,818 32,550 41,439
---------------------------------------
Operating expenses:
Research and development .......... 8,402 7,462 7,856
Selling, general and administrative 21,423 18,579 20,415
Corporate overhead allocation ..... 281 285 327
Write-off of in-process technology 0 0 863
Amortization of acquisition related
intangibles ................... 24,064 24,064 18,249
----------------------------------------
Total operating expenses ...... 54,170 50,390 47,710
----------------------------------------
Loss from operations .......... (23,352) (17,840) (6,271)
Other expense, net ................. 502 2,052 1,072
Minority interests (TXCom) ......... 0 0 411
----------------------------------------
Loss before income tax benefit
(expense) ................. (23,854) (19,892) (7,754)
Income tax benefit (expense) ....... 3,931 2,366 (2,025)
----------------------------------------
Net loss ...................... $(19,923) $(17,526) $(9,779)
========================================
The accompanying notes are an integral part of these combined financial
statements.
<PAGE>
The Data Capture Group of Spectra-Physics AB
Combined Statements of Changes in Spectra-Physics AB's Investment for the years
ended December 31, 1993, 1994 and 1995
Year ended December 31,
------------------------------------
1993 1994 1995
---- ---- ----
(in thousands)
Balance, beginning of year ............. $ 82,690 $ 59,797 $41,409
Net loss .............................. (19,923) (17,526) (9,779)
Foreign currency translation .......... 226 (5) 280
Net capital withdrawal ................ (3,196) (857) (6,040)
------------------------------------
Balance, end of year ................... $ 59,797 $ 41,409 $25,870
====================================
The accompanying note are an integral part of these combined financial
statements.
<PAGE>
The Data Capture Group of Spectra-Physics AB
Combined Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1993 1994 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents)
Cash flows from operating activities:
Net loss ........................................ $(19,923) $(17,526) $(9,779)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation ..................................... 3,181 3,305 4,101
Amortization of intangibles ...................... 24,412 24,461 18,639
Write-off of in-process technology ............... 0 0 863
Write-off of investment in CECS .................. 61 379 330
Deferred income tax benefit ...................... (3,304) (2,864) (1,350)
Minority interests (TxCom) ..................... 0 0 411
Changes in assets and liabilities, net of the
effect of acquisition of TxCom in 1995:
Accounts receivable ........................... 3,229 (3,945) 644
Note receivable ............................... 0 0 (1,642)
Inventories ................................... 810 (497) (911)
Other current assets .......................... (339) (913) 224
Accounts payable and accrued liabilities ...... (2,800) 3,484 1,400
Deferred revenue .............................. 329 232 165
---------------------------
Net cash provided by operating facilities .... 5,656 6,116 13,095
---------------------------
Cash flows from investing activities:
Purchase or property, plant and equipment ....... (3,414) (3,721) (3,824)
Proceeds from sale of property, plant and
equipment ....................................... 115 12 17
Investment in minority-owned equipment .......... (110) (330) (330)
Purchase of TxCom, net of cash acquired ......... 0 0 (2,367)
---------------------------
Net cash used in investing activities ........ (3,409) (4,039) (6,504)
---------------------------
Cash flows used in financing activities:
Net capital withdrawal by Spectra-Physics AB .... (3,196) (857) (6,504)
Effect of exchange rate changes on cash .......... 226 (5) 280
---------------------------
Net increase (decrease) in cash & cash equivalents (723) 1,215 831
Cash and cash equivalent at beginning of year .... 1,257 534 1,749
---------------------------
Cash and cash equivalents at end of year ......... $ 534 $ 1,749 $ 2,580
===========================
Continued
</TABLE>
<PAGE>
The Data Capture Group of Spectra-Physics AB
Combined Statements of Cash Flows, Continued
Year ended December 31,
--------------------------
1993 1994 1995
---- ---- ----
(in thousands)
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest ....................................... $313 $313 $304
Income taxes ................................... 1,040 498 3,247
Acquisition of TxCom:
Purchased technology ........................... 0 0 1,273
In-process technology .......................... 0 0 863
Goodwill ....................................... 0 0 760
- - ---
0 0 2,896
Tangible assets acquired,
net of liabilities assumed .................. 0 0 1,923
Deferred income tax liability ................... 0 0 (509)
- - ----
0 0 4,310
Less cash acquired .............................. 0 0 (1,943)
- - ------
Net cash paid at acquisition ................ 0 0 $2,367
= = ======
The accompanying note are an integral part of these combined financial
statements.
<PAGE>
The Data Capture Group of Spectra-Physics AB
Notes to Combined Financial Statements
(Amounts in thousands)
1. Organization and Basis of Presentation:
Organization: The accompanying combined financial statements of The Data
Capture Group of Spectra-Physics AB (the Company) include the assets and
liabilities at historical cost and operating results and cash flows of the
Data Capture Group of Spectra-Physics AB, a Swedish manufacturing company.
The Company consists of the operations, assets and liabilities of the
Company's sales and manufacturing facilities located in Eugene, Oregon;
its various foreign sales and technical support offices located in the
United Kingdom, France, Germany, Italy, Australia and Japan; and a 60%
investment in T.X.C.O.M. SA (TxCom). The Company designs, manufactures and
markets bar code scanners, wireless radio frequency systems and retail
automation systems for the use in the worldwide automatic identification
and data collection industry.
In July 1990, Spectra-Physics, Inc. and its subsidiaries (SP) were
acquired by Pharos USA, Inc., which is indirectly owned by Pharos AB (now
known as Spectra-Physics AB). In 1990, SP managed four distinct operating
divisions, one of which was the scanning system division. The transaction
was recorded using the purchase method of accounting. Accordingly, a new
basis of accounting was established for the Company in 1990 based on an
allocation of the purchase price among SP divisions, based upon the
present value of estimated future cash flows expected to result from the
use of certain assets, resulting in a purchase price in excess of tangible
assets acquired less liabilities assumed of $145,900 (see Note 6).
Basis of Presentation: The combined financial statements have been
prepared as if the Company had operated as an independent stand-alone
entity for all periods presented. The Company has not had significant
borrowings, and there was no allocation of Spectra-Physics AB consolidated
borrowings and related interest expense. The Company had engaged in
various transactions with Spectra-Physics AB and its affiliates that are
characteristic of a group of companies under common control. Throughout
the period covered by these combined financial statements, the Company
participated in Spectra-Physics AB's centralized cash management system.
The Company's operational transactions resulted in amounts receivable from
and payable to Spectra-Physics AB which fluctuated over time and such net
withdrawals have been presented net in the balance sheet as
Spectra-Physics AB's investment in the Company. Significant intercompany
balances and transactions within the Company have been eliminated.
The Company was charged by Spectra-Physics AB for direct costs and
expenses associated with its operations which were included in cost of
goods sold or selling and administrative expenses, as appropriate.
Spectra-Physics AB's administrative costs which are indirectly
attributable to the Company, have not been historically charged to the
Company. However, these costs have been allocated to the Company in the
accompanying financial statements based on the estimated level of effort
expended on behalf of the Company. Management believes that such method of
allocation is reasonable and reflects a reasonable estimate of the level
of expenses that would have been incurred had the Company operated on a
stand-alone basis. As shown on the combined statements of operations,
"Corporate overhead allocation" consisted of $281, $285 and $327 of such
indirect costs for 1993, 1994 and 1995, respectively.
Continued
<PAGE>
The Data Capture Group of Spectra-Physics AB
Notes to Combined Financial Statements, Continued
(Amounts in thousands)
1. Organization and Basis of Presentation, Continued:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Estimates and Industry Factors:
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Technology - The market for the Company's products is characterized by
rapidly changing technology, evolving industry standards and changing
customer needs. The Company believes that its future success will depend,
in part, upon its ability to enhance its current products, to develop new
products and systems on a timely and cost-effective basis, and to respond
to changing customer needs and technological developments. To date, the
Company's revenues have been concentrated in the sale of fixed and
handheld scanners. The Company expects that increasing portions of its
operations will be devoted to, and revenues will result from, the
manufacture and sale of automated data collection systems and
product-related services.
Patents - The Company's success is dependent in part on its ability to
continue to have patent protection for its products, maintain trade secret
protection and operate without infringing the proprietary rights of
others.
Major Customers - The Company sells to various customers. A major customer
represented 10% or more of net sales. One customer represents 24%, 12% and
14% of net sales in 1993, 1994 and 1995, respectively.
<PAGE>
The Data Capture Group of Spectra-Physics AB
Notes to Combined Financial Statements, Continued
(Amounts in thousands)
2. Summary of Significant Accounting Policies:
Revenue Recognition: Revenue for sales of the Company's products is
recognized upon shipment. In conjunction with these sales, field service
maintenance agreements are entered into for certain products. Maintenance
revenues are recognized ratably over the term of the maintenance period,
which is typically one to three years.
Cash and Cash Equivalents: The Company participates in Spectra-Physics
AB's centralized cash management system that invests excess cash in
marketable securities, with maturities of three months or less. The
carrying value of cash and cash equivalents approximates fair value
because of the short maturity of these investments.
Accounts Receivable: Accounts receivable are stated at face value, less an
allowance for uncollectible accounts.
Inventories: Inventories are stated at the lower of cost (first-in, first-
out basis) or market.
Property,Plant and Equipment: Property, plant and equipment is recorded at
cost. Depreciation and amortization is provided on a straight-line basis
over the following estimated useful lives:
Buildings and improvements .................... 10 to 45 years
Machinery and equipment ....................... 3 to 8 years
Leasehold improvements (limited to
terms of the leases) .......................... 5 to 10 years
Intangible Assets: In 1995, the Company elected adoption of the accounting
provisions of Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". This Standard requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. No
adjustments were necessary to implement this Standard.
Intangibles resulting from business acquisitions represent goodwill,
covenants not to compete and purchased technologies, and are being
amortized on the straight-line method over their estimated useful lives of
5 years. When factors indicate that these intangibles should be evaluated
for possible impairment, the Company uses an estimate of the acquired
business' undiscounted future cash flows expected to result from the use
of the intangibles and its eventual disposition in measuring whether the
intangibles are recoverable. Other intangibles, which consist of patents,
licenses and trademarks, including costs incurred in connection with the
protection of patents, are generally amortized over their estimated useful
lives of 5 to 10 years, using the straight-fine method.
Continued
<PAGE>
The Data Capture Group of Spectra-Physics AB
Notes to Combined Financial Statements, Continued
(Amounts in thousands)
2. Summary of Significant Accounting Policies, Continued.
Investment in Minority-Owned Company: The Company owns 11% of the equity
of Catalina Electronic Clearing Systems, Inc. (CECS) and accounts for it
on the cost method. CECS has been a development stage company incurring
recurring losses. When factors indicate that the Company's investment in
CECS should be evaluated for possible impairment, the Company uses an
estimate of CECS's expected undiscounted future cash flows and its
eventual disposition in measuring whether the investment in CECS is
recoverable. In each year through 1995, the Company has written down its
investment to zero as the Company believes its value has been impaired.
Software Development Costs: The Company capitalizes costs incurred for
internally developed product software where economic and technological
feasibility has been established and for qualifying purchased product
software. Generally, software development costs incurred subsequent to
achieving economic and technological feasibility using a working model
have not been material. Accordingly, no software development costs were
capitalized.
Research and Development Expenses: The Company expenses all research and
development costs as incurred.
Income Taxes: The Company uses the liability method to record deferred tax
assets and liabilities based on the difference between the tax bases of
assets and liabilities and their carrying amounts for financial reporting
purposes.
The Company has historically been included in the consolidated federal and
state income tax returns of Spectra-Physics, Inc. The income tax benefit
reflected in the accompanying combined financial statements represents the
Company's share of Spectra-Physics, Inc.'s income tax provision which is
intended to approximate the benefit which would have been recognized had
the Company filed separate income tax returns.
Domestic income taxes have been treated as if settled immediately through
an adjustment to Spectra-Physics AB's investment in the Company. The
current deferred income tax asset and the deferred income tax liability
have been determined on a stand-alone basis. Provision is made for U.S.
income taxes on undistributed earnings of foreign entities, unless such
earnings are considered indefinitely reinvested.
Forward Foreign Exchange Contracts: The Company may occasionally enter
into forward foreign exchange contracts as a hedge against currency
fluctuations relating to net foreign transactions and commitments
denominated in foreign currencies. Gains and losses on forward contracts
are deferred and offset against foreign exchange gains or losses on the
underlying hedged items.
Continued
<PAGE>
The Data Capture Group of Spectra-Physics AB
Notes to Combined Financial Statements, Continued
(Amounts in thousands)
2. Summary of Significant Accounting Policies, Continued:
Foreign Currency Translation: The Company's foreign subsidiaries' accounts
are measured using local currency as the functional currency. Assets and
liabilities are translated at the exchange rate in effect at year end.
Revenues and expenses are translated at the average rate of exchange
prevailing during the year. Translation adjustments arising from
differences in exchange rates from period to period are included in the
cumulative adjustment account in Spectra-Physics AB's investment, net of
related deferred income taxes.
Product Warranty: The Company's products typically have a warranty period
of 12 months. Estimated warranty costs are accrued at the time of sale of
the warranted products. The Company maintains an accrual for warranty
claims and adjusts this accrual periodically based on historical
experience and known warranty claims.
Spectra-Physics AB's Investment: Spectra-Physics AB's investment reflects
the historical activity between the Company and Spectra-Physics AB and the
Company's cumulative results of operations. Transactions with
Spectra-Physics AB are reflected as though they were settled immediately
as an addition to or reduction of Spectra-Physics AB's investment, and
there are no significant amounts due to or from Spectra-Physics AB at the
end of any period, except as described in Notes 3 and 8.
Accounting Standards Pronouncements: In October 1995, the Financial
Accounting Standards Board adopted Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation", which
is effective for fiscal years beginning after December 15, 1995. The
Standard requires the Company either to adopt a fair value based method of
accounting for compensation cost related to stock options in the income
statement or to continue using the intrinsic value based method of
accounting prescribed by Accounting Principles Board Opinion 25,
"Accounting for Stock Issued to Employees". If the Company opts not to use
the fair value based method of accounting, pro forma disclosures will need
to be reported in the notes to the financial statements. The Company
currently does not plan to adopt the fair value based method provisions of
SFAS No. 123.
<PAGE>
The Data Capture Group of Spectra-Physics AB
Notes to Combined Financial Statements, Continued
(Amounts in thousands)
3. Acquisition of TxCom:
Effective July 1, 1995, the Company entered into an agreement to purchase
all of the outstanding shares of TxCom over a four-year period and
purchased 60% of the outstanding shares as of that date. TxCom
manufactures and sells wireless radio frequency systems for material
movement and inventory control applications. The acquisition was accounted
for using the purchase method. Accordingly, the purchase price, net of
cash acquired of $2,367, was allocated to assets and liabilities acquired
based upon their fair values. The results of operations of TxCom are
included in the 1995 combined statement of operations since the date of
acquisition. The total cost in excess of net assets acquired was allocated
based upon the present value of estimated future cash flows expected to
result from the use of certain assets to purchased technology of $1,273,
in-process technology of $963 and goodwill of $760. Purchased technology
and goodwill are being amortized over the estimated useful life of five
years. In the third quarter of 1995, the Company incurred a one-time
noncash charge to operations of $863 for the write-off of in-process
technology, because the technological feasibility of the in-process
technology acquired had not been established and there was no alternative
future use. An additional 12% of the shares of TxCom were acquired on
February 9, 1996 for approximately $1.8 million. The remaining 28% of the
shares will be acquired in increments of 10%, 10% and 8% in January 1997,
1999 and 1999, respectively, at purchase prices based, in general, on
TxCom's operating earnings during certain measuring periods.
The following unaudited pro forma summary presents information as if the
acquisition had occurred at the beginning of each fiscal year. The pro
forma information is provided for information purposes only. It is based
on historical information and does not necessarily reflect the actual
results that would have occurred nor is it necessarily indicative of
future results of operations of the combined companies.
Year ended December 31, 1995:
Net sales .................................... $103,749
Net loss ..................................... (9,806)
Year ended December 31, 1994:
Net sales .................................... 91,925
Net loss ..................................... (18,385)
On December 22, 1995, TxCom loaned Spectra-Physics approximately $1,642 at
an interest rate of 5.75% to be paid on March 28, 1996.
<PAGE>
The Data Capture Group of Spectra-Physics AB
Notes to Combined Financial Statements, Continued
(Amounts in thousands)
4. Inventories:
Inventories consist of the following:
1994 1995
---- ----
Raw materials ....................................... $3,905 $4,057
Work-in-process ..................................... 1,817 1,545
Finished goods ...................................... 1,502 3,089
------ ------
$7,224 $8,691
5. Property, Plant and Equipment:
1994 1995
---- ----
Land ................................................ $ 848 $ 928
Building and improvements ........................... 10,304 10,707
Machinery and equipment ............................. 25,042 28,231
------ ------
36,194 39,866
Less accumulated depreciation ....................... (20,460) (24,384)
-------- --------
$15,734 $15,482
6. Intangible Assets:
1994 1995
---- ----
Intangibles as a result of business acquisitions:
Goodwill ................................. $71,656 $72,416
Purchased technology ..................... 28,662 29,935
Covenant not-to-compete .................. 20,000 20,000
------ ------
120,318 122,351
Other intangibles:
Patents, trademarks and licenses ......... 2,297 2,268
----- -----
122,615 124,619
Less accumulated amortization .................. (104,047) (122,352)
--------- ---------
$ 18,568 $ 2,267
========= =========
<PAGE>
The Data Capture Group of Spectra-Physics AB
Notes to Combined Financial Statements, Continued
(Amounts in thousands)
6. Intangible Assets, Continued.
Excess of Purchase Price: Intangibles resulting from business acquisitions
relate to the allocation of the purchase price resulting from the 1990
acquisition of the Company by Spectra-Physics AB (see Note 1) and the 1995
acquisition of TxCom by the Company (see Note 3). A summary of the
purchase price allocation of the 1990 acquisition of the Company by
Spectra-Physics AB as of July 1990 is as follows:
Purchased technology .................................... $28,662
In-process technology ................................... 15,147
Covenant-not-to-compete ................................. 20,000
Goodwill ................................................ 71,656
-------
135,465
Tangible assets acquired, net of liabilities assumed .... 21,900
Deferred income tax liability ........................... (11,465)
-------
Total purchase price .................................... $145,900
The purchase price in excess of net tangible assets acquired was amortized
using the straight-line method over the estimated useful lives of five
years, except for in-process technology acquired which was written off in
July 1990 as its technological feasibility had not yet been established
and there was no alternative future use. Accumulated amortization related
to the 1990 acquisition was approximately $102,270 and $120,318 at
December 31, 1994 and 1995, respectively. As of September 1995, the total
purchase price in excess of net tangible assets acquired was fully
amortized.
The deferred tax liability of $11,465 arose as a result of the difference
between the bases of the purchased technology for financial reporting and
tax purposes at the date of acquisition.
7. Accounts Payable and Accrued Liabilities:
1994 1995
---- ----
Accounts payable ..................................... $ 6,822 $ 6,697
Accrued payroll and related employee benefits ........ 2,514 4,667
Warranty accrual ..................................... 540 984
Other accrued expenses ............................... 277 314
------ -------
$10,153 $12,662
<PAGE>
The Data Capture Group of Spectra-Physics AB
Notes to Combined Financial Statements, Continued
(Amounts in thousands)
8. Long-term Debt:
Long-term debt consists of the following:
1994 1995
---- ----
Industrial Development Bonds, interest payable
January 1 and July 1, at varying interest rates
from 6.8% to 7.2% (notes are collateralized by
certain property and equipment of the Company),
which have been assumed by the Company from
Spectra-Physics, Inc. ......................... $4,400 $4,100
Less current portion .......................... (300) (300)
------- -------
$ 4,100 $ 3,800
======= =======
The minimum annual maturities of long-term debt at December 31, 1995 are
as follows:
1996 ...................... $ 300
1997 ...................... 300
1993 ...................... 300
1999 ...................... 300
Thereafter ................ 2,900
------
$4,100
======
<PAGE>
The Data Capture Group of Spectra-Physics AB
Notes to Combined Financial Statements, Continued
(Amounts in thousands)
9. Income Taxes:
Income tax benefit (expense) consisted of the following:
Year Ended December 31
-----------------------------------
1993 1994 1995
---- ---- ----
Current:
Federal ....................... $1,667 0 $(2,663)
State ......................... 0 0 (606)
Foreign ....................... (1,040) $(498) (1,022)
------- ------ -------
Total current ........... 627 (498) (4,291)
------- ------ -------
Deferred:
Federal ....................... 2,568 2,641 1,289
State ......................... 736 223 61
----- ----- -----
Total deferred .......... 3,304 2,864 1,350
----- ----- -----
Benefit of loss carryforwards 0 0 916
-----
Income tax benefit (expense) $3,931 $2,366 $(2,025)
====== ====== ========
The temporary differences and net operating losses that generate deterred
tax assets and liabilities included in the combined balance sheets are as
follows:
December 31
-------------------------
1994 1995
Assets:
Inventories .................................... $ 506 $ 489
Allowance for doubtful accounts receivable ..... 55 55
Accrued vacation ............................... 284 334
Warranty provision ............................. 211 381
Other provisions ............................... 334 305
Deferred revenue ............................... 319 381
Equity losses from minority-owned company ...... 167 293
Net operating loss carryforwards ............... 916 0
----- -----
Total deferred tax assets ................ 2,792 2,238
----- -----
Liabilities:
Accumulated depreciation ....................... (1,628) (1,495)
Purchased technology ........................... (1,720) (428)
------- -------
Total deferred tax liabilities ........... (3,348) (1,953)
------- -------
Net deferred tax asset (liability) ....... $ (556) $ 285
========= =======
<PAGE>
The Data Capture Group of Spectra-Physics AB
Notes to Combined Financial Statements, Continued
(Amounts in thousands)
9. Income Taxes, Continued:
The effective tax rate of the income tax benefit (expense) varies from the
federal statutory rate. The reasons for the variances are as follows:
1993 1994 1995
---- ---- ----
Tax benefit at statutory rate ............... 34.0% 34.0% 34.0%
State income taxes, net of federal benefit .. 3.1 1.7 (4.1)
Amortization and write-off of cost in excess
of net assets acquired (nondeductible items). (20.4) (25.0) (56.0)
Tax exempt Foreign Sales Corporation income . 0 .8 2.5
Foreign tax in excess of domestic rate ...... 0 (.1) (3.9)
Other ....................................... (.2) .5 1.4
---- ---- -----
16.5% 11.9% (26.1%)
===== ===== =======
10. Other Expense, Net:
Other expense, net consists of the following:
1993 1994 1995
---- ---- ----
Interest expense ........................... $313 $313 $304
Foreign exchange loss ...................... 128 796 573
Minimum royalties paid under
settlement of litigation ................. 0 500 0
Write-off of investment in CECS ............ 61 379 330
Other ...................................... 0 64 (135)
---- ---- -----
Total ................................ $502 $2,052 $1,072
==== ====== ======
<PAGE>
The Data Capture Group of Spectra-Physics AB
Notes to Combined Financial Statements, Continued
(Amounts in thousands)
11. Commitments and Contingencies:
Royalty Agreements: The Company has entered into several royalty
agreements to obtain licenses of certain patents. Royalty expense under
these agreements was $701, $1,107, and $855 in 1993, 1994 and 1995,
respectively. In 1994, the Company entered into an agreement settling
patent litigation brought by another manufacturer, which gives the Company
future rights to use certain manufacturing technology. The minimum royalty
liability was $500, which was paid and included in other expense in 1994.
Under the agreement, the Company will pay royalties not to exceed an
additional $1 million. Royalties due are first credited against the $500
payment. In 1995, the Company applied approximately $80 in royalty costs
against the prepayment.
Patent Litigation: The Company is currently a defendant in a patent
infringement lawsuit filed against it by PSC, Inc. (PSC) alleging that the
Company is infringing a PSC patent for an optical scanning device for
detecting bar codes. The Company maintains that PSC's patent is invalid,
that the Company has not infringed the patent, or both. In addition, the
Company is currently involved in other matters of litigation arising from
the normal course of business. Management is of the opinion that such
litigation will not have a material adverse effect on the Company's
combined financial position or results of operations.
12. Benefit Plans:
Savings Plus Plan: The Company sponsors a Savings Plus Plan (the 401(k)
plan) for all U.S. employees meeting certain service requirements. The
Company may make contributions to the 401(k) plan each year that match in
whole or in part the pre-tax contributions that employees make to the
401(k) plan. The Company's contributions for 1993, 1994 and 1995 were
$336, $300 and $328, respectively.
Incentive Compensation: The Company has two incentive plans. The first
plan allows for payment of cash awards to management and key employees
based upon achievement of annual financial performance goals or other by
the Company. The Company recognized expenses relating to this plan of $49,
$112 and $611 in 1993, 1994 and 1995, respectively. The second plan allows
for payments of cash awards to substantially all employees based upon
improvement in the Company's earnings over a three-year period. The
Company recognized expenses related to this plan of approximately $-O-,
$178 and $489 in 1993, 1994 and 1995, respectively.
<PAGE>
The Data Capture Group of Spectra-Physics AB
Notes to Combined Financial Statements, Continued
(Amounts in thousands)
13. Operations by Geographic Area:
The Company is engaged in one industry segment, specifically, the design,
manufacture and marketing of bar code scanners, wireless radio frequency
systems and retail automation systems. Operations are summarized below by
geographic area. The Company's operations in Western Europe generally
consist of selling and performing field service maintenance on products
designed and manufactured primarily in the United States, and the
activities of TxCom.
<TABLE>
<CAPTION>
North
America Europe Other Elimination Total
------- ------ ----- ----------- -----
<S> <C> <C> <C> <C> <C>
1995
- ----
Income Statement
Net sales $43,580 $40,713 $17,334 0 $101,627
Loss from operations (3,126) (1,991) (1,154) 0 (6,271)
Balance Sheet
Identifiable assets $33,937 $13,874 $2,441 $(3,627) $46,625
1994
- ----
Income Statement
Net sales $38,924 $32,942 $16,468 0 $88,334
Loss from operations (7,222) (7,806) (2,812) 0 (17,840)
Balance Sheet
Identifiable assets $52,589 $6,856 $2,812 $(2,946) $59,311
1993
- ----
Income Statement
Net sales $42,195 $26,710 $10,550 0 $79,455
Loss from operations (10,330) (7,870) (5,152) 0 (23,352)
Balance Sheet
Identifiable assets $71,982 $2,225 $4,606 $(2,358) $76,455
</TABLE>
<PAGE>
The Data Capture Group of Spectra-Physics AB
Notes to Combined Financial Statements, Continued
(Amounts in thousands)
14. Financial Instruments:
Forward Exchange Contracts: The Company has only limited involvement with
derivative financial instruments and does not use them for trading
purposes. Periodically, the Company enters into foreign currency forward
exchange contracts to hedge a portion of its anticipated foreign currency
sales transactions. The effect of this practice is to minimize the impact
of foreign exchange rate movements on the Company's operating results.
As of December 31, 1995, the Company had no forward exchange contracts
outstanding. The forward exchange contracts generally have maturities that
do not exceed 12 months and require the Company to exchange foreign
currencies for U.S. dollars at maturity, at rates agreed to at inception
of the contracts.
The Company controls the credit risks associated with Foreign currency
transactions through approvals and centralized monitoring procedures but
does not normally require collateral or other security from the parties to
the financial instruments.
Fair Value of Financial Instruments: In December 1991, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 107 ("SFAS 107") "Disclosures about Fair Value of Financial
Instruments". SFAS 107 requires disclosures of the estimated fair value of
all financial instruments other than specified items such as lease
contracts, subsidiary and affiliate investments and employers' pension and
benefit obligations.
The following methods and assumptions were used by management to estimate
the fair value of each class of financial instrument for which it is
practicable to estimate that value. The resulting estimates of fair value
require subjective judgments and are approximate. Changes in the following
methodologies and assumptions could significantly affect the estimates.
o Cash and Cash Equivalents: The carrying amounts reflected in the
combined financial statements are reasonable estimates of fair value
o Note Receivable: The fair value of note receivable is estimated by
discounting the future cash flows using the current rates at which a
similar note receivable would be made to borrowers with similar
credit ratings and for the same maturities.
o Long-term Debt and Current Portion of Long-term Debt: The estimated
fair values of these financial instruments set forth below were
determined by estimating future cash flows on a
borrowing-by-borrowing basis and discounting these future cash flows
using the Company's incremental borrowing rates for similar types of
borrowing arrangements.
1995
----------------------------
Carrying Estimated
Amount Fair Value
------- ----------
Cash and cash equivalents ........................... $3,922 $3,922
Note receivable ..................................... 1,642 1,642
Long-term debt ...................................... 4,100 3,650
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL DATA
(UNAUDITED)
The following pro forma financial data of PSC Inc.(the Company) consists of (i)
a pro forma consolidated balance sheet as of June 30, 1996, (ii) a pro forma
consolidated statement of operations for the year ended December 31, 1995 and
(iii) a pro forma consolidated statement of operations for the six months ended
June 30, 1996, collectively the pro forma statements.
The pro forma balance sheet as of June 30, 1996 combines the balance sheet of
the Company as of June 30, 1996 and the balance sheet of the Data Capture Group
of Spectra-Physics AB (Spectra) as of June 30, 1996 as adjusted for the
acquisition on July 12, 1996 by the Company of certain of the assets and
liabilities of Spectra. The pro forma balance sheet is presented as if the
acquisition was consummated on June 30, 1996.
The unaudited pro forma consolidated statement of operations combines the
historical consolidated statement of operations of the Company for the year
ended December 31, 1995 and for the six months ended June 30, 1996 and the
consolidated statement of operations of the Spectra for the year ended December
31, 1995 and for the six months ended June 30, 1996, as adjusted for the
acquisition on July 12, 1996 by the Company of certain of the assets and
liabilities of Spectra. The pro forma statement of operations is presented as if
the acquisition was consummated on January 1, 1995.
The pro forma statement of operations should be read in conjunction with the
separate historical financial statements of Spectra and related notes, included
herein and the historical consolidated financial statements of the Company, the
related notes and Management's Discussion and Analysis of Financial Condition
and Results of Operations for the year ended December 31, 1995. The pro forma
statements are based upon currently available information and upon certain
assumptions that the Company believes are reasonable under the circumstances.
The pro forma statements do not purport to represent what the Company's
financial position or results of operations would actually have been if the
acquisition of Spectra had occurred at the beginning of the period indicated or
project the Company's financial position or results of operations at any future
date or for any future period.
<PAGE>
The Data Capture Group of Spectra-Physics AB
Combined Statement of Operations
(Unaudited) - (in thousands)
Six Months Ended
June 30
---------------------
1996 1995
-------- --------
Net Sales ........................................... $ 60,953 $ 47,182
Cost of Sales ....................................... 33,451 29,531
-------- --------
Gross Profit .................................. 27,502 17,651
Operating Expenses:
Engineering, Research & Development ........... 4,328 3,621
Selling, General and Administrative ........... 11,672 9,279
Amortization of Acquisition
Related Intangibles ......................... 315 12,032
Write-off of In-process Technology ............ 464 0
Corporate Overhead Allocation ................. 0 163
-------- --------
Income from operations ........................ 10,723 (7,444)
Interest and other income/(expense), net ............ 32 (481)
-------- --------
Income/(Loss) before provision for
(benefit from) income taxes ................ 10,755 (7,925)
Income Tax Provision (Benefit) ...................... 4,087 (3,012)
-------- --------
Net Income .......................................... $ 6,668 ($ 4,914)
======== ========
Notes:
The accompanying consolidated financial statements have been prepared by the
Data Capture Group of Spectra-Physics AB without audit. In the opinion of
management, these financial statements include all adjustments necessary to
present fairly the Data Capture Group of Spectra-Physics AB's financial position
as of June 30, 1996, and the results of operations for the six months ended June
30, 1996 and 1995. The results of operations for the six months ended June 30,
1996 are not necessarily indicative of the results to be expected for the full
year.
Certain information and disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. The accompanying financial statements should be read in
conjunction with the financial statements and notes thereto included elsewhere
in this report.
<PAGE>
<TABLE>
PSC Inc. and Subsidiaries
and The Data Capture Group of Spectra-Physics AB
1995 Fiscal Year Pro Forma Consolidated Statement of Operations
(Unaudited) - (in thousands, except per share data)
<CAPTION>
Pro Forma
Adjustments
for the
Company Spectra Acquisition Consolidated
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Net Sales ....................... $87,516 $101,627 0 $189,143
Cost of Sales ................... 50,634 60,188 0 110,822
--------- --------- --------- ----------
Gross Profit ............... 36,882 41,439 0 78,321
Operating
Expenses:
Engineering, Research &
Development ................ 4,962 7,856 0 12,818
Selling, General and
Administrative ............. 23,901 20,415 0 44,316
Amortization of Acquisition
Related Intangibles ........ 0 18,249 (12,162)1 6,087
Write-off of In-process
Technology .............. 0 863 60,100 2 60,963
Corporate Overhead
Allocation ................ 0 327 (327)3 0
--------- --------- --------- ----------
Income/(Loss) from
operations ................ 8,019 (6,271) (47,611) (45,863)
Interest and other
income/(expense), net .......... 676 (1,483) (11,528)4 (12,335)
--------- --------- --------- ----------
Income/(Loss) before
provision for (benefit from)
income taxes............. 8,695 (7,754) (59,139) (58,198)
Income Tax Provision ........... 3,246 2,025 365 5 5,636
--------- --------- --------- ----------
Net Income (Loss) .............. $5,449 ($9,779) ($59,504) ($63,834)
========= ========= ========= ==========
Net Income (Loss) per Common and
Common Equivalent Share .... 0.54 0 0 (5.69)
Weighted Average Number of
Common and Common Equivalent
Shares Outstanding ............. 10,013 0 0 11,216
</TABLE>
Notes to Unaudited Pro Forma Statement of Operations
- ----------------------------------------------------
1 Reflects the elimination of Spectra-Physics' amortization of acquisition
related intangibles of $18,048 and reflects the increase in amortization
expense of $5,886 relating to the Spectra-Physics' acquisition. The
intangible asset has been recorded at its estimated fair market value and
amortized using the Company's amortization method over 10 years, the
current estimated useful life.
2 Reflects the elimination of acquired in-process R&D costs written off at
the date of acquisition.
3 Reflects the elimination of Spectra-Physics' corporate overhead allocation
of $327.
4 Reflects the elimination of Spectra-Physics' interest expense of $302 and
reflects the increase in interest expense of $11,830 relating to the debt
incurred to finance the Spectra-Physics' acquisition. Interest expense was
calculated using an assumed average interest rate of 9.4% per annum.
5 Reflects the additional tax expense calculated using a combined federal and
state income tax rate of 38%. Assumes no tax benefit for the write-off of
in-process technology.
<PAGE>
<TABLE>
PSC Inc. and Subsidiaries
and The Data Capture Group of Spectra-Physics AB
Six Months Ended June 30, 1996 Pro Forma Consolidated Statement of Operations
(Unaudited) - (in thousands, except per share data)
<CAPTION>
Pro Forma
Adjustments
for the
Company Spectra Acquisition Consolidated
--------- -------- ---------- ----------
<S> <C> <C> <C>
Net Sales ........................ $43,551 $60,953 0 $104,504
Cost of Sales .................... 25,831 33,451 0 59,282
--------- -------- ---------- ----------
Gross Profit ............... 17,720 27,502 0 45,222
Operating Expenses:
Engineering, Research &
Development ................ 3,391 4,328 0 7,719
Selling, General and
Administrative ............. 13,472 11,672 0 25,144
Amortization of Acquisition
Related Intangibles ........ 0 315 2,335 1 2,650
Write-off of In-process
Technology ................. 0 464 0 464
--------- -------- ---------- ----------
Income from operations ..... 857 10,723 (2,335) 9,245
Interest and other
income/(expense), net ............ 169 32 (5,962) 2 (5,761)
--------- -------- ---------- ----------
Income/(Loss) before
provision for (benefit
from) income taxes ..... 1,026 10,755 (8,297) 3,484
Income Tax Provision (Benefit) ... 380 4,087 (3,153) 3 1,314
--------- -------- ---------- ----------
Net Income ....................... $646 $6,668 ($5,144) $2,170
========= ======== ========== ==========
Net Income per Common and Common
Equivalent Share ........... 0.06 0 0 0.19
Weighted Average Number of Common
and Common Equivalent Shares
Outstanding ................ 10,412 0 0 11,440
</TABLE>
Notes to Unaudited Pro Forma Statement of Operations
- ----------------------------------------------------
1 Reflects the elimination of Spectra-Physics' amortization of acquisition
related intangibles of $608 and reflects the increase in amortization
expense of $2,943 relating to the Spectra-Physics' acquisition. The
intangible asset has been recorded at its estimated fair market value and
amortized using the Company's amortization method over 10 years, the
current estimated useful life.
2 Reflects the elimination of Spectra-Physics' interest income of $296 and
reflects the increase in interest expense of $5,666 relating to the debt
incurred to finance the Spectra-Physics' acquisition. Interest expense
was calculated using an assumed average interest rate of 9.4% per annum.
3 Reflects the additional tax expense calculated using a combined federal
and state income tax rate of 38%.
<PAGE>
<TABLE>
PSC Inc. and Subsidiaries
and The Data Capture Group of Spectra-Physics AB
June 30, 1996 Pro Forma Consolidated Balance Sheet
(Unaudited) - (in thousands, except per share data)
<CAPTION>
Pro Forma
Adjustments
for the
Company Spectra Acquisition Consolidated
------- ------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments
Accounts ........................ $ 8,782 $ 0 $ (5,010) 1 $ 3,772
Accounts receivable, net......... 15,213 15,781 0 30,994
Inventories, net ................ 12,320 8,672 0 20,992
Prepaid expenses and other ...... 2,633 1,879 (2,028) 1 2,484
---------- ------------ ---------- ----------
TOTAL CURRENT ASSETS ......... 38,948 26,332 (7,038) 58,242
PROPERTY, PLANT AND EQUIPMENT, net.. 21,772 15,487 0 37,259
DEFERRED TAX ASSETS ................ 1,410 0 0 1,410
INTANGIBLE AND OTHER ASSETS, net ... 10,888 2,850 58,859 2 72,597
---------- ------------ -------- ----------
TOTAL ASSETS ....................... $ 73,018 $ 44,669 $ 51,821 $ 169,508
========== ============ ========= ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES
Current portion of long-term
debt ........................... $ 141 $ 0 $ 5,125 3 $ 5,266
Accounts payable ............... 10,478 5,831 0 16,309
Accrued expenses ............... 5,843 6,653 8,098 4 20,594
Accrued payroll and commissions. 589 0 0 589
Accrued acquisition related
restructuring costs ............ 257 0 0 257
---------- ------------ -------- ----------
TOTAL CURRENT LIABILITIES ... 17,308 12,484 13,223 43,015
LONG-TERM DEBT .................... 454 0 122,375 3 122,829
OTHER LONG-TERM LIABILITIES ....... 609 1,348 0 1,957
SHAREHOLDERS' EQUITY
Preferred shares, par value $.01 0 0 0 0
Common shares, par value $.01 .. 100 188 (178) 5,6 110
Additional paid-in capital ..... 46,578 22,813 (15,823) 5,6 53,568
Retained earnings/(deficit).... 8,194 7,727 (67,667) 6,7 (51,746)
Cumulative translation adjustment 12 109 (109) 6 12
Less: treasury stock .......... (237) 0 0 (237)
---------- ------------ -------- ----------
TOTAL SHAREHOLDERS' EQUITY .. 54,647 30,837 (83,777) 1,707
---------- ------------ -------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY ......................... $73,018 $44,669 $ 51,821 $ 169,508
========== ============ ======== ==========
</TABLE>
<PAGE>
Notes to Unaudited Pro Forma Balance Sheet
- ------------------------------------------
1 Reflects cash paid by the Company to fund a portion of the purchase price
and acquisition related closing expenses.
2 Reflects the excess of the purchase price paid over the fair
market value of the assets acquired.
3 Reflects the debt incurred to fund a portion of the purchase price.
4 Reflects accrued expenses for liabilities and acquisition
related closing expenses.
5 Reflects the common shares issued to fund a portion of the purchase
price, with a par value of $10 and paid-in capital of $6,990.
6 Reflects the elimination of the shareholders' equity of Spectra-Physics.
7 Reflects the write-off of the acquired in-process R&D of $60,100.
